Exide Industries Ltd (EXIDEIND) Q4 FY23 Earnings Concall Transcript

Exide Industries Ltd (NSE:EXIDEIND) Q4 FY23 Earnings Concall dated May. 11, 2023.

Corporate Participants:

Subir Chakraborty — Managing Director and Chief Executive Officer

A K Mukherjee — Director Finance and Chief Financial Officer

Analysts:

Aditya Jhawar — Investec — Analyst

Jinesh Gandhi — Motilal Oswal — Analyst

Raghu Nandan — Nuvama Research — Analyst

Ashutosh Tiwari — Equirus Securities — Analyst

Pramod Kumar — UBS — Analyst

Siddhartha Bera — Nomura — Analyst

Binay Singh — Morgan Stanley — Analyst

Vaibhav Zutshi — JPMorgan — Analyst

Prateek — Nippon AMC — Analyst

Deepak Jain — ENAM AMC — Analyst

Kapil Singh — Nomura — Analyst

Krupa Shankar — Avendus Spark — Analyst

Presentation:

Operator

Ladies and gentlemen, a very good afternoon and welcome to the Q4 FY’23 Earnings Call of Exide Industries Limited. [Operator Instructions] Please note that this conference is being recorded.

I will now hand the conference over to Mr. Aditya Jhawar from Investec. Thank you, and over to you.

Aditya Jhawar — Investec — Analyst

Thank you, Brian. Good afternoon to you all. From Exide Industries, we have with us MD and CEO, Mr. Subir Chakraborty; Director of Finance and CFO, Mr. Ashish Kumar Mukherjee; and Head of Investor Relations, Chhavi Agarwal.

Before we proceed, here is the disclaimer for the call. Few statements by the company management in the call made will be forward-looking in nature and we request you to refer to the disclaimer in the earnings presentation. We will start the call with a brief opening remarks from the management followed by Q&A session.

I would now like to invite Mr. Subir Chakraborty for the opening remarks. Over to you, sir.

Subir Chakraborty — Managing Director and Chief Executive Officer

Thank you, Aditya. Good afternoon, ladies and gentlemen, and a warm welcome to everyone. Thank you all for joining us on the call. I hope you have gone through the presentation which we shared in the morning on the exchange list. I’ll start by talking about the 4th-quarter results. Overall, we continued to deliver steady any performance despite inflationary pressures. In the automotive verticals, domestic sales grew year-on-year, supported by OEM demand, though demand momentum was moderate in the replacement market. Automotive exports were impacted by anti-dumping duties in the GCC countries and by the modest demand in the Western countries. On the industrial side, demand was up upbeat across verticals such as industrial UPS, solar traction and telecom, supported by increase in business and commercial facilities.

If you look at the full-year performance, we have delivered impressive growth with sales and PBT growing by 18% each. Our growth has been broad-based with more sectors registering double digit sales growth. On the automotive side, we continue to strengthen our position, both with the OEMs and in the replacement market. We have launched technologically advanced products and our distribution reach has significantly expanded. We are making efforts to increase our international presence and have entered new geographies like Russia.

On the industrial side, 70% of the business including Industrial UPS, telecom and solar have grown at an inspiring rate of 20% to 30% in the previous year. This was driven by strong demand across all the end-markets in the industrial vertical. We have strengthened our product portfolio to offer a comprehensive product range catering to evolving market requirements. We are increasing our geographical footprint by building brand resonance in new markets and increasing customer connect through the newly launched app called Exide Edge.

This year, margins are impacted by commodity inflation, resulting not only in higher material prices but also a high freight and logistics cost. However, prices have broadly stabilized and inflationary pressures have started easing, which should benefit us in the near-term. We are also taking calibrated price increases which should also support margins.

Last time I talked about the accelerated digital transformation we went through in the past few years and this has enabled us to be more agile and efficient. I would like to highlight the benefits we are driving from this exercise. In the automotive vertical, now we have more micro-market level visibility and hence sharper deployment of strategic initiatives. Today, our team member has almost real-time visibility of performance and channel partners also enjoy greater transparency and tools to enable growth for their businesses.

In the industrial vertical, we are better able to connect with customer and understand the requirements through the digital app Industry 4.0. Initiatives has digitalized production processes in factories and information is available on a real-time basis. Further, all processes are more streamlined and we have been able to lower fixed cost.

Moving to our lithium-ion cell manufacturing project under our subsidiary Exide Energy Solutions Limited, the project is progressing extremely well. All necessary permissions have been secured and site-enabling work have been completed. On-ground construction activity has been initiated and foundation laying work is progressing in full swing. We have recruited senior management team comprising experienced and senior persons in functions such as R&D, sales, procurement, quality, IT and others. This team is expected to ensure timely project execution and delivery. We have so far invested roughly INR715 crores in the project.

Other subsidiary Exide Energy Private Limited which develops and manufactures lithium-ion determined based modules and packs is also doing well. The company has received orders of INR600 crores to 700 crores to be executed in the next 12 to 15 months for its various verticals such as Two-wheeler, Three-wheeler, commercial vehicles and telecom.

On the outlook for the lead-acid battery business, we are positive given both near-term and medium-term drivers look promising. With driving preference for personal mobility, increasing inter and intrastate connectivity, increasing prominence of technologically advanced products and solutions, demand is expected to be high in the automotive verticals. Increased government spending on infrastructure development and increasing business activity is keeping order inquiries high in the industrial vertical. We are continuously evaluating the market scenario and working towards introducing products which cater to changing industry requirements. Our balance sheet is strong with zero-debt equity and our cash flows are positive. This places us in a strong position to tap new opportunities.

With this, I close my opening remarks. We will now be happy to take your questions.

Questions and Answers:

Operator

Thank you. [Operator Instructions] Our first question comes from the line of Jinesh Gandhi from Motilal Oswal. Please go ahead.

Jinesh Gandhi — Motilal Oswal — Analyst

Hi, sir. Can you talk about for FY’23 broader growth for the key segments, replacement, OEM, and industrial and exports, how they would have grown in FY’23 full-year?

Subir Chakraborty — Managing Director and Chief Executive Officer

Sorry. I could not get your question.

Jinesh Gandhi — Motilal Oswal — Analyst

For full-year FY’23, what would have been indicative growth rates for automotive OEMs, Automotive Aftermarket, Industrial segment, and Exports?

Subir Chakraborty — Managing Director and Chief Executive Officer

FY’23, we have already said that we have grown at 18% for the whole company and the growth rates have all been in double digits across verticals.

Jinesh Gandhi — Motilal Oswal — Analyst

Okay, okay, got it. And second question pertains to the replacement market growth. So, are you seeing any pickup in the replacement market given that it has been moderate for some time now, both on four-wheelers as well as two-wheeler battery?

Subir Chakraborty — Managing Director and Chief Executive Officer

Yeah, there is some momentum in the replacement market as well and we hope that this year should see a full pickup of the replacement market, post the COVID scenario.

Jinesh Gandhi — Motilal Oswal — Analyst

Okay. You expect good growth in FY’24 in replacement as well?

Subir Chakraborty — Managing Director and Chief Executive Officer

Yes, yes.

Jinesh Gandhi — Motilal Oswal — Analyst

And in the presentation you have talked about margin initiatives which you are taking to improve margins. So can you highlight what kind of margin expansion and what are the level of margins you would be comfortable with via-a-vis where we are today?

Subir Chakraborty — Managing Director and Chief Executive Officer

We have been working on two fronts. One is the digitalization initiative which have being taken, which certainly given us more visibility across all costs, both in the factories as well as in the corporate. And besides that, we have also taken cost optimization — undertaken cost optimization measures in a very major way, particularly in our factories, which will result in margin expansion in the coming quarters.

Jinesh Gandhi — Motilal Oswal — Analyst

Okay. So do you expect it to go back to mid-teens margins or it should be much lower than what we have doing in the past?

Subir Chakraborty — Managing Director and Chief Executive Officer

We should certainly see significant improvement going forward.

Jinesh Gandhi — Motilal Oswal — Analyst

Okay, okay and you indicated for lithium-ion project we have invested INR750 crores so far.

Subir Chakraborty — Managing Director and Chief Executive Officer

INR715 crores, not INR750 crores.

Jinesh Gandhi — Motilal Oswal — Analyst

INR715 crores. okay, okay. And any guidance for capex for the lead acid for FY’24 and for lithium-ion also for FY’24 for?

Subir Chakraborty — Managing Director and Chief Executive Officer

Mr. Mukherjee will answer that.

A K Mukherjee — Director Finance and Chief Financial Officer

For lead acid business, we have to spend about INR500 crores to INR600 crores and for lithium-ion, of course, we are in the process of placing the orders for the equipments and all that. So this will come in due course of time, maybe let FY’24 or in ’24-’25. So accordingly it will be spent because out of the total Phase 1 expenditure of around INR4,000 crores is part of that.

Jinesh Gandhi — Motilal Oswal — Analyst

Okay, got it, thanks. I’ll come back in queue.

Operator

Thank you. [Operator Instructions] Our next question comes from the line of Raghu Nandan from Nuvama Research. Please go ahead.

Raghu Nandan — Nuvama Research — Analyst

Good afternoon, sir. Thank you so much for the opportunity. Sir, two questions. Firstly, in domestic market, can you broadly indicate how the market share was for FY’23 across segments.

Subir Chakraborty — Managing Director and Chief Executive Officer

See, market shares at the individual level we do not really talk about, but at a broad level I can tell you that we have in most verticals either we have remained steady or we have grown market share.

Raghu Nandan — Nuvama Research — Analyst

Got it, sir. And my second question was on the customer base for the new business. You indicated that company has successfully won orders of INR600 cores to INR700 crores to be executed over 12 to 15 months. Can you indicate major customers or segments? Also for the upcoming lithium cell factory, have you tied up with customers? When can we expect announcements relating to this? I’m just trying to get a visibility on the utilization in what timeframe the plant can reach optimal utilization.

Subir Chakraborty — Managing Director and Chief Executive Officer

First and foremost for the lithium-ion project, the developments which we have done, because you must understand that the homologation process in lithium-ion takes about one to one and a half years. So there are NDAs covering this vis-a-vis each customer that we have been working with. So I cannot — won’t be able to tell you individual customer names, but I can tell you that it goes across Two-wheeler, Three-wheeler, commercial vehicles and telecom. That is one.

Number two, your question was that whether — I will explain to you how the logic behind what we are doing. The module and pack making facility today has got orders of INR600 crores to INR700 crores. And ultimately these products which we are making — the modules and packs which we are making, the cells are imported, but ultimately these cells will be produced in our own factory in Bangalore, which we have now for which construction has already started. So the customer connect has started long back through our module and pack making facility. And this will flow into the Exide Energy Solutions Limited once we start making the cells in our own factory. So to summarize, we are far ahead in the customer connect rate, vis-a-via, I would say the other players in this field because of our module and pack making facility is already on stream.

Raghu Nandan — Nuvama Research — Analyst

That’s good to hear, Sir. Just one clarification. So the factory cell manufacturing project is expected to start production by end of FY’25, and would you expect that reaching an optimal utilization of 70%, 80% would be possible within the first three years?

Subir Chakraborty — Managing Director and Chief Executive Officer

So ideally, lant stabilization for lithium-ion cell making facility takes anything between six to eight months. So once we start the actual production run, we’ll have to see to what extent we can quicken this timeline. But normally internationally if you check, this is the kind of timeline it takes. But we hope that with the help of our collaborator and so on we’ll be able to compress this time.

Raghu Nandan — Nuvama Research — Analyst

Just the last question. Once you reach optimum utilization, say 80% maybe three-four years — three years after you commence the plant, what would be the kind of ROIC you will be looking at?

Subir Chakraborty — Managing Director and Chief Executive Officer

Mr. Mukherjee will answer this question.

A K Mukherjee — Director Finance and Chief Financial Officer

Once we reach the optimum capacity utilization, the ROI should be in the similar level of the legacy business.

Raghu Nandan — Nuvama Research — Analyst

Around 20%. Thank you. Thank you, Mr. Mukherjee and thank you, Mr. Chakraborty. Have a good day.

Operator

Thank you. Our next question comes from the line of Ashutosh Tiwari from Equirus Securities. Please go ahead.

Ashutosh Tiwari — Equirus Securities — Analyst

Yeah, hi sir. So firstly, on the margin side, if I look at your gross margins, what used to be earlier in the earlier years around 35% has now come down to 30%, and latest also if we look at I think they were obviously higher a year back, but now they have come down, so why it is so much of pressure on the gross margin side? Is it because mix has changed for us in terms of maybe industrial has grown higher and their margins are lower? Or what’s the reason behind that? And considering all that things, how should we look at margin going ahead? Can we go back to the 13%, 14% kind of margin that we used to do, in say next one year period?

Subir Chakraborty — Managing Director and Chief Executive Officer

The margin that you said that it has come down is primarily because of the material price volatility. You know the kind of lead price fluctuations are happening. Even in the last quarter compared to the previous quarter, sequentially the cost has gone up by about 4%. So there is a net impact on the margin of about 2%. So quarter-to-quarter fluctuations are quite large. And it is not happening in this quarter only, its happening for last two financial years. So that is the primary reason of fluctuation of margins from quarter-to-quarter.

But as you said that earlier our EBITDA margin was on the higher side. Now we have initiated a lot of cost optimization initiatives, particularly the manufacturing sector as well as in logistics area and we expect the results to come in due course of time. And definitely that will result into improvement of margin going forward.

Ashutosh Tiwari — Equirus Securities — Analyst

But, sir see, the factory cost cutting and all probably can only give you maybe a 1% or 1.5% kind of improvement because other expenses is not that larger component of the cost. The major reduction that has happened is on the gross margin side. So there if things can change, then only we can probably see a material improvement in the margin. So I just wanted to understand on that part. Can you see the gross margin normalizing because it’s only, I mean the competition is mainly between two players. And despite that if we are not able to pass on the lead cost increase to customers, this was not the case five years back, we probably had much stable margin that time, but now we have seen this reduction happening. So how should one look one look at that intensity on competition side now? Has things change versus last — what it was five years back?

Subir Chakraborty — Managing Director and Chief Executive Officer

Manufacturing is not restricted to only manufacturing expenses, also it includes material. And that is where you are talking about the gross margin, which is after material cost. So we expect lot of improvement there. And also versus the material cost is also more a stable situation, it also gives lot of advantage to improvement of the margin.

Ashutosh Tiwari — Equirus Securities — Analyst

And secondly on this, you talked about that there is a anti-dumping duty imposed in the Gulf countries, so how big was that market for us and now how what kind of drop you see in the volumes over there after this duty? This is applying or it is completely halted?

Subir Chakraborty — Managing Director and Chief Executive Officer

No-no, it has not been altered, rather the anti-dumping duty was imposed on certain base level classes of batteries. But right now we are exporting anion flooded batteries to the Gulf, and that has started to pickup. Which is not covered under anti-dumping.

Ashutosh Tiwari — Equirus Securities — Analyst

So mainly the drop in exports is driven by maybe European softness in all? Is that correct assessment?

Subir Chakraborty — Managing Director and Chief Executive Officer

Pardon.

Ashutosh Tiwari — Equirus Securities — Analyst

I mean, you mentioned that exports have gone down versus last year. So is that mainly because of that European market is not doing well because Europe also used to be sizable for us earlier.

Subir Chakraborty — Managing Director and Chief Executive Officer

There was some sluggishness in the market last year in international markets. But right now we see exports growing in this particular year again.

Ashutosh Tiwari — Equirus Securities — Analyst

Okay. And last question on this lithium-ion side, you mentioned around INR600 crores to INR700 crores kind of order that they have — you have basically for execution over next 12 to 15 months. So we can assume that almost like INR400 crore sales can come from there in this financial year, FY’24?

Subir Chakraborty — Managing Director and Chief Executive Officer

So that is — the lithium-ion is under a subsidiary, as you know, Exide Energy Private Limited, which is being now — we have already made the application to NCLT for merger of this Company with Exide Energy Solutions Limited. So the turnover will come in that company and I guess in the consolidated balance sheet it will show.

Ashutosh Tiwari — Equirus Securities — Analyst

But we can look at INR400 crores plus kind of sales in this year, FY24?

Subir Chakraborty — Managing Director and Chief Executive Officer

WE certainly look at INR400 crores to INR500 crores of additional turnover from that.

Ashutosh Tiwari — Equirus Securities — Analyst

Okay, okay. Thank you. That’s all from my side.

Operator

Thank you. [Operator Instructions] Our next question comes from the line of Pramod Kumar from UBS. Please go ahead.

Pramod Kumar — UBS — Analyst

Yeah. Thanks a lot for the opportunity, sir. Sir, my question pertains to the lithium battery project, you talked about ROEs in this business on a steady-state basis, kind of matching your 20% profile. I’m just trying to understand this because if you look at global names, even the best in the [Indecipherable] they struggle to have even high-single-digit ROEs consistently. So in that context, what is giving us the confidence that we can match the lead-acid battery ROEs in our business? If you can just help us understand what is the edge we have overall these global peers when it comes to cost or, I don’t know, input side, which gives you the confidence that can match lead acid battery business ROE?

Subir Chakraborty — Managing Director and Chief Executive Officer

Basically, you have to understand not in a global context but in the national context. In the national context, our factory perhaps will be the first such level factory which will go up. Okay, number-one. Number two, you have to understand that in those lithium-ion failed the first-mover advantage is huge. Why is it huge? Because it requires one-and-half to two years to homologate any product. Unlike lead acid where if you have a steady supplier, a competitor can come in and present the product and after few months of trials that product cam be accepted by an OEM. In lithium-ion it’s not like that. The whole process of homologation approval takes one and a half to two years.

So number-one, we firmly believe that Exide will a huge first-mover advantage in this space, number-one. Number two, the OEMs today are having to import batteries from China or whatever and import of batteries means, it’s a huge working capital requirement in an industry which is used to just in time operations. So Exide will be able to offer the same just in time facility that they are used to rather than having to predict sales and then import and all the uncertainties and the freight and the logistics, everything else. So. That is another advantage.

Third advantage is that we are tied with our collaborator for their supply chain aspect as well, which means we can ride piggyback along with SVOLT for our raw material requirements. And SVOLT is a very big player in China. So that gives us the third advantage.

Fourth, it will be a turnkey project where SVOLT engineers will be here. There’ll be 300 to 400 experts from China and other places initially working on this project. So therefore we can compress the timeline to stabilization of the plant and everything else so we can quickly get off the ground. And I believe we will be far ahead of the rates in terms of — in comparison with the others who are also in this particular game. So this gives us a huge advantage. Now, there is a premium certainly which we can look-forward to from the customer for all the benefits which we are going to offer to them.

Pramod Kumar — UBS — Analyst

Sir, but, sorry sir…

Subir Chakraborty — Managing Director and Chief Executive Officer

Yeah please tell me.

Pramod Kumar — UBS — Analyst

No sir, I’m just trying to understand, because a lot of the companies, large OEMs are already importing lithium cells from LG Chem or [Speech Overlap]

Subir Chakraborty — Managing Director and Chief Executive Officer

This is exactly what I’m trying to ell you. The people who are importing the lithium cells, they are having to suffer all these issues right now.

Pramod Kumar — UBS — Analyst

But even we will be importing the cells initially, right, for the foreseeable future?

Subir Chakraborty — Managing Director and Chief Executive Officer

No-no, we are not importing. We are going to make these cells — cell manufacturing plant. But we have to make cylindrical cells, make prismatic cells in our plant with LLP NCM chemistry. So therefore, which caters to a very wide portfolio. And we are already supplying with those same format through the module and pack making plant presently. So all these translate into definite advantages for us in the medium and long-term.

Pramod Kumar — UBS — Analyst

Fair enough, sir. And amongst customers who have placed orders with you, is there any Tier-1 large OEM who has placed order within either in the Two-wheeler space on in the Three-wheeler space?

Subir Chakraborty — Managing Director and Chief Executive Officer

There are multiple OEMs who have placed orders with us. Not only OEMs in Two-wheelers and Three-wheelers, also in commercial vehicles and telecom.

Pramod Kumar — UBS — Analyst

Yeah, that’s what, because of the electric vehicle OEMs space itself is quite wide. You’ve got like 500 brands of EVs in India. So I’m just trying to understand the profile of the customer. Is it we are talking about Tier-1, like say Ashok Leyland or a Mahindra or a Tata in the EV space or a here or a Bajaj?

Subir Chakraborty — Managing Director and Chief Executive Officer

[Speech Overlap] that we will not be able to name specific customers because there are NDAs associated with this development. But yes, it covers a lot of well-known OEMs in this space.

Pramod Kumar — UBS — Analyst

Fair enough, sir. Thanks a lot and wish you all the best.

Subir Chakraborty — Managing Director and Chief Executive Officer

And we are working with many more today, because there is nobody else because the OEMs understand the readiness of our project. So there are many-many OEMs today who are already working with us in trying to — in order to ensure that their customized products are developed and ready.

Pramod Kumar — UBS — Analyst

Fair enough sir. Great to hear and wish you all the best, sir. Thank you.

Operator

Thank you. Our next question comes from the line of Siddhartha Bera from Nomura. Please go ahead.

Siddhartha Bera — Nomura — Analyst

Yeah, sir. Thanks for the opportunity. Sir, first on this net charge orders. So are we already booking any revenues in the last quarter or this entire order is incremental which will come up in the coming year?

Subir Chakraborty — Managing Director and Chief Executive Officer

So we have certain amount of turnover in the last financial year, but this is the first year where there will be sizable operations.

Siddhartha Bera — Nomura — Analyst

Okay, and would it be possible to highlight the margins for this order? Will it be at the company average or it will be different?

Subir Chakraborty — Managing Director and Chief Executive Officer

So specific margins, we won’t do to highlight, but these are — modules and packs are being made with imported cells. so you must understand one thing in this entire value chain, 70% of the value lies in the cell making and only about 30% larger module pack and the other other items. So right now when we are including the cells, we are missing out on the 70% of the value chain, which we will enjoy once our own plant comes on stream.

Siddhartha Bera — Nomura — Analyst

Got it, got it. And in terms of the cells, would it be possible to highlight the cells, like we are not importing from China and when you make in India, how much will be the difference in dollar rate per kilowatt roughly? As I have told you, 70% of the value chain is in the cell making activity. So, and these, prices, as you know, internationally will go up and down based on the commodity prices. So essentially you can understand that the — that is the motivation to get into cell making because when you begin to enjoy that 70% of that value chain. Okay, okay, is it possible to highlight how much cheaper can we expect if we are making in India or that…

Subir Chakraborty — Managing Director and Chief Executive Officer

So how much means, it’s very difficult to tell you in terms of dollars because there are — it’s a multiple cell chemistry plant, it’s a multiple format chemistry plant. So it depends which specific cell you are talking about. It will differ from cell to cell. And in any case, it is too premature at this stage. Once the plant get fund our operation, then perhaps one will have a better visibility. But all that I’m trying to tell you is against the importing the cell and making the cell there is a huge difference.

Operator

Thank you. Our next question comes from the line of Binay Singh from Morgan Stanley. Please go ahead.

Binay Singh — Morgan Stanley — Analyst

Hi, team. Thanks for the opportunity. Just continuing on the earlier question, right. One was to think about the competitive edge that Exide will get in the next two-three years, from the lithium facility, fair to assume that the first one will be cost that cell made in India will be substantially cheaper because broadly your customer will three options, right? Either they import like everyone is doing today or they go to the PLI player where they get an additional incentive that Exide does get or they come with Exide. I do understand that, like SVOLT is credible player and you have lot of technology support here, but just any sense in terms of competitive edge that if you could quantify any numbers that broadly, just so that for us to get more insight into the competitive positioning of Exide versus these PLI players and importers?

Subir Chakraborty — Managing Director and Chief Executive Officer

See you know the people who qualified for PLI. You can find out where they are in their manufacturing process. If you do that, I don’t wish to comment on others. But if you do that, you will understand where we are becoming the others. So who are the people who qualified for PLI, Rajesh Exports. Have you heard of them, about their plant, where they are making. What is the technology. Likewise, if go through the list, you will come to know who are the players and what is their state of readiness at this point in time. All that we are saying is that perhaps, although I cannot say for sure, perhaps we will be the first mega scale, multi-chemistry multi-format plant in operation in the country. We have already started construction of the plant. How many people have started construction of the plant, you can scan the environment and see for yourself.

As I’ve told you, this will result in huge first-mover advantage because lithium-ion cell is not something that you can go and present one fine morning to a customer saying that I have brought a cell for you. All these have to be customized to the customers requirements. And it’s not only just the cell format. It is the module and pack format which has to be customized. And these require sophisticated engineering processes and this takes time. It is subject to number of approvals, including approval from Government of India.

So therefore the first-mover advantages is huge. So somebody wants to catch up with us, he is already tow years behind us. So this is the huge advantage that this factory or this unit will enjoy over competition. Number-one, number two, this is not a product where there is any experience in the country. There is no experience such in this country. We have to learn from others who are already doing this. And therefore it is not like lead acid or any other kind of technology where you can import some machinery, get some people who already are in this business and you are all set to go. Here, this is something which you have to learn and you require a very strong partner. And we believe we have got a very strong partner with us. And if you again scan the environment, you will see many of the players who are talking about this project are still scanning for partners. It’s not easy to get a partner. So we already got a very strong partner and we have at the point of, you know, ordering out the machinery. So we are well ahead in this space. This is what will give us the competitive advantage.

Binay Singh — Morgan Stanley — Analyst

And, sir, like if you look at the SVOLT customer profile in China, they are working with on the major EV players, passenger car EV players. So but in your commentary you were talking more about Two-wheeler, Three-wheeler and CVs. Is that more because you’re talking about Nexcharge, whereas I assume that passenger car will be a big focus for this facility, right?

Subir Chakraborty — Managing Director and Chief Executive Officer

We have started this project with Nexcharge three years back. But now Nexcharge will get merged with our main — the main unit, which is Exide Energy Solutions Limited, with all one composite company. So it is this experience with Nexcharge which has given us this head start. Because please understand, this is not a product, again as I said, there is no experience set in this country. Unless you actually dip your feet into the water, you don’t know what it is like and how deep that water is. So because we started with Nexcharge three years back, what we’re trying to understand what this business is really all about, who are the players, what are the constraints, what are the issues that we need to address, which gave us this advantage. Now somebody wants to start from today already is three years behind us because we know what the time it takes to understand this technology because there is nothing available in the country.

Binay Singh — Morgan Stanley — Analyst

Correct. So but fair to assume that even passenger care companies, a lot of them are doing their own thing in India on the same side, but that is also a target customer products for this facility, right?

Subir Chakraborty — Managing Director and Chief Executive Officer

Certainly there will be some major OEMs who may decide to set up their own plant for lithium-ion manufacturing. However, this is not their core expertise. Making batteries is not part of the core expertise of any automotive plant. Certainly, some big companies may decide that okay we will invest in that and develop that expertise. But there will be many companies who will not want to get into it. Number-one, it is not part of their core competitive strength. Number two, this is very-very capex hungry project. It requires huge capex, spending to $80 million per gigawatt hour, and automotive company will have very — will need to have very deep pockets to really invest in this.

On the other hand, if you look globally, there are many models which are in existence today. Some have decided to get into it, like Tesla. But there are others who have tied up with battery manufacturers in terms of dedicating one line for their requirements and stuff like that, so all kinds of models are in place. Now I firmly believe that all the auto companies in India will not have the appetite to get into this. It is a very different kind of technology, very different kind of expertise from what they already have. So many of them will want to tie up. And certainly there are many companies which will not have the appetite for these kind of capex. So I think a pure battery manufacturer like us will have a substantial role in this growing market.

Binay Singh — Morgan Stanley — Analyst

And sir lastly just on raw material sourcing, I recall there also you have a tie-up with SVOLT, right, because that’s going to be another big thing as all these plants come up.

Subir Chakraborty — Managing Director and Chief Executive Officer

So this is important earned regardless you know today the lithium-ion plants are on the order of 30 gigawatt hour, 40 gigawatt hour, so you require scale to be able to actually command reasonable raw material prices for yourselves. And our advantage is that we will ride piggyback on SVOLT supply chain. So that gives us another edge in this market. Today if you just on a standalone basis setup a 2 gigawatt hour plant, you will not enjoy those raw materials — the same raw material pricing as somebody who’s buying, lets say 30 gigawatt. So all these factors I think together point to a certain advantages position for our project.

Binay Singh — Morgan Stanley — Analyst

Okay. Thanks, sir. Thanks for those answers.

Operator

The. Thank you. Our next question comes from the line of Vaibhav Zutshi from JPMorgan. Please go ahead.

Vaibhav Zutshi — JPMorgan — Analyst

Yeah, good afternoon. Thanks for the opportunity. My first question is on the lithium-ion side. So you’ve mentioned in the past that in Phase 2 you will likely also consider bleed [Phonetic] chemistry for passenger vehicles, which is I think not going to happen in Phase 1. So just also want to try to understand, potentially by 2027’28, how are you also preparing for, say the rise of advanced chemistry make solid-state sodium ion. Do you have the optionality to integrate that or would that potentially come later in Phase 3 or later thought?

Subir Chakraborty — Managing Director and Chief Executive Officer

Right now there are many technologies all over the world at various stages of development. There is sodium ion, there is metal air, there are various kinds of things. Now in terms of scalability, today lithium-ion is the only technology which is scalable, others are at various stages of development. And I’m sure in course of time many of these technologies will become scalable, okay? So why we are not looking at other technologies right now is because none of these technologies in our opinion are scalable at this point in time. Are we open to look at alternate technologies in course of time? Sure, yes. We can look at it provided something really crops up on the horizon.

Number two, within lithium-ion also there will be many developments which will take place. And certainly we will look at each of these development and see whether it fits in with our requirements or not, or with the requirements of our customers. And we will certainly at that point of time take a decision on this, because no technologic remains static at any — even lead acid is not static. Lead acid is also developing in every ways. So therefore there is no reason to believe that we will be static with respect to whatever we are starting off. This is just a starting off point.

And manufacturing, you see the machinery is largely the same. What changes will happen will be in the receiving’s. So the manufacturing machinery basically, calendaring machines so on and so forth, they will not go through any drastic change. But the recipe is. The recipe will change with the time.

Vaibhav Zutshi — JPMorgan — Analyst

Got it. And when I look at your presentation, it looks like you’ve devised your lithium-ion demand forecast versus the last presentation that you posted in 2022, and it looks like the increase is broadly on the stationary side as slightly onto various SPV. So is the outlook looking more positive on the stationary side for lithium applications? I just wanted get thoughts in that.

Subir Chakraborty — Managing Director and Chief Executive Officer

This is again an evolving sector and as time is passing and with the government initiatives happening and so on and so forth, these estimates are getting progressively revised. So all the releases that I’ve seen are on the increasing side, it is not on the reducing side. So now with time I’m sure these estimates, initially it was thought that it will be 100 gigawatt hour total requirement by 2030. Now I’m saying estimates of 150 gigawatt hour and there are some positive estimates which are double this number. So it’s all little bit of guess work at this point in time. All that I can tell you is that there is genuine interest now from all the manufacturers and both on the mobility as well as on the stationary side. Because many-many and most of the players have realized that they cannot depend only on the traditional technology at this point in time.

So if you ask me what the world will look like. You see, India is today growing or have aspirations to go from $3.1 trillion economy. If we are able to grow anywhere close to that, I’m sure there will be increasing demand for energy because without energy you cannot grow and it is impossible for any one kind of chemistry to be able to satisfy this requirement of energy. So if you ask me to a bit of future gazing the world which is going to emerge, I think we’ll be — we’ll have a multi chemistry format with respect to energy in the times to come. Lithium-ion, you will have lead acid, you may have metal air, you may have sodium ion. All these technologies come with the pros and cons. They are very good for certain applications, not so good maybe for other applications. So therefore each will find its own space. And if there is growth, I don’t think there’s anything to fear for any of the players.

Vaibhav Zutshi — JPMorgan — Analyst

Got it. Thank you so much. That was very helpful.

Operator

Thank you. Ladies and gentlemen due to time constraints, please restrict to two questions per participant. Our next question comes from the line of Prateek from Nippon AMC. Please go ahead.

Prateek — Nippon AMC — Analyst

Yeah. Hi, sir. Sir, is it possible for you to share what kind of realizations per kilowatt hour we would fetch once the plant gets commercialized?

Subir Chakraborty — Managing Director and Chief Executive Officer

Realizations depends on basically — actually they are all linked to the raw material pricing and the situation. And as you know, it keeps on varying. Look, it’s too early now to get into that exercise, maybe 1.5 years down the line one will be able to give a better visibility. All that I can say is we will be as competitive as anyone in the world because we are getting a world-class plant, which is going to be initially on a turnkey basis, it will be run. So there is no reason to believe that we will be not as competitive as anyone else in the world.

Prateek — Nippon AMC — Analyst

That’s helpful, sir. And in terms of when you benchmark your cells via SVOLT, which is other competition, how would you stack them? Are you right up there with the other competitors?

Subir Chakraborty — Managing Director and Chief Executive Officer

We believe that we will be able to — I mean based on whatever discussions we’ve had with the customers, we strongly believe that we’ll be able to satisfy their requirement. These are all customized for customer requirements. This is not a question of which is better, which is worst. Each customers, they have, it has its own requirements. They want a certain energy density, they want a certain kind of feature and so on and so forth.

Prateek — Nippon AMC — Analyst

So if I were to ask you the other way, sir.

Subir Chakraborty — Managing Director and Chief Executive Officer

Based on our discussions, we do not feel in any sense that we are at a disadvantage. We are able to reach whatever we have decided in terms of product portfolio. We would be able to satisfy the customer requirements which are emanating as on date.

Prateek — Nippon AMC — Analyst

So, fair to say you will have a very good conversion rates with the customers when you are having a discussion?

Subir Chakraborty — Managing Director and Chief Executive Officer

Sorry, I did not get your question.

Prateek — Nippon AMC — Analyst

No, I’m saying in terms of converting them from — getting firm orders from them in terms of conversions once you give your products, should we assume a very-high conversion rate?

Subir Chakraborty — Managing Director and Chief Executive Officer

You are saying that whether these discussions will result in orders. We already got 600 — INR500 crores to INR600 crores of orders.

Prateek — Nippon AMC — Analyst

No-no, I was asking for sales because you said there is a two years homologation process, right? So since you are globally competitive, there is no difference in technology, I’m just trying to get to, are you confident of very high conversions when you talk to a lot of OEMs are, are you getting that confidence that will get translated into orders?

Subir Chakraborty — Managing Director and Chief Executive Officer

Yes, we are already — that is what I was trying to tell you. Many of these conversations today have resulted in these orders which we have already declared in our in our note, INR500 cores to INR600 crores of order. These orders have resulted from these discussions and more discussions are ongoing at this point in time. We already — we will be supplying cells, imported from SVOLT and from others. And those cells will ultimately be manufactured in our own factory. So it’s like a startup to our entire project.

Prateek — Nippon AMC — Analyst

Got it, got it. And lastly in terms of technology within lithium-ion, would it be R&D, would you depend on SVOLT for giving you the technical capabilities or you yourself will have to set-up an R&D plant in India?

Subir Chakraborty — Managing Director and Chief Executive Officer

We have got our own R&D already set up. Our Chief Technology Officer, she has spent decades working in General Motors. So she is our Chief Technology Officer. We have sourced people from all over the world for this plant, people with experience in lithium-ion and we will be having our own R&D set up, our own pilot lines. So it will be a full-fledged operation. It’s not a question of permanently depending on anybody.

Operator

Thank you. Our next question comes from the line of Deepak Jain from ENAM AMC. Please go ahead.

Deepak Jain — ENAM AMC — Analyst

Sir, I have one question. We have seen lithium carbonate prices coming down by 40%, 60% recently. Now in that scenario, theoretically the battery prices — imports may also become cheaper. And also on a long-term basis we have seen battery costs have come down to I think the $150 per kilowatt hour. So if prices of the battery imports come down, don’t you think the return ratios for the project which you are saying that it should be. In-line with the company average that will be impacted and also we don’t have a PLI benefit.

Subir Chakraborty — Managing Director and Chief Executive Officer

See the battery — first of all, please understand what is this PLI all awards. PLI is not something that will remain forever. Considering even if you were to imagine that somebody has got PLI, then that PLI actually is a fixed time format incentive which has been done by the Government of India. And I do not see any of the plants anywhere close to state of readiness that we are in at in time. In fact, many of them don’t even have tie-ups. This is a matter of four or five years if they are able to really put up a plant and then derive those advantages. So we are not that bothered about PLI at this point in time. As far as the rest of the things are concerned, import prices come down, input prices will come down only if the the commodity prices come down. In which case we will also enjoy the same advantages. Number-one.

Number-two is in a situation where domestic manufacturing is going to start in India, certainly the Indian government, you know, request can be made to them to look at the duty structure, after all the government is fully committed to encouraging domestic industry. And our Honorable Prime Minister has been taking about Atmanirbhar Bharat. So if lithium-ion plant comes up of gigawatt scale in our country, I’m sure the government will look at it very favorably.

Deepak Jain — ENAM AMC — Analyst

Okay. Sir, what is the royalty agreement with SVOLT? Anything you can share?

Subir Chakraborty — Managing Director and Chief Executive Officer

Its a technology license agreement, the way — it’s got a fixed fee and a certain percentage on sales. So there is nothing special or unique about it.

Deepak Jain — ENAM AMC — Analyst

So we imagine 4%, 5% as royalty, just ballpark?

Subir Chakraborty — Managing Director and Chief Executive Officer

I’m sorry, we don’t discuss specific royalties or percentages for technology agreements.

Deepak Jain — ENAM AMC — Analyst

Okay, sir. Thank you, sir. Thank you. Our next question comes from the line of Kapil Singh from Nomura. Please go ahead. Hir, sir. Sir, there were some news reports that FAME might not get an extension. So in your base case in the presentation I see that you even talked about FAME extension. So would this — the orders that you have got, do you see some kind of risk to that going ahead because you know mostly is the benefit of FAME is there for two-wheelers and there-wheelers.

Subir Chakraborty — Managing Director and Chief Executive Officer

Unfortunately, it’s coming a little — you are talking about which orders, the orders we have got for Nexcharge.

Kapil Singh — Nomura — Analyst

Nexcharge and also the future orders that we have for battery cells.

Subir Chakraborty — Managing Director and Chief Executive Officer

So you’re saying the risk is because of what reason?

Kapil Singh — Nomura — Analyst

So basically there are some news reports saying that FAME might not get an extension. And therefore if the prices of two-wheelers and Three-wheelers were to rise, Two-wheeler currently get roughly about INR50,000 per vehicle.

Subir Chakraborty — Managing Director and Chief Executive Officer

I have understood. You are talking about the PLI for the two-wheelers. You’re talking about the PLI for the two-wheelers and Three-wheelers, right?

Kapil Singh — Nomura — Analyst

No, sir, the FAME scheme benefit which is there.

Subir Chakraborty — Managing Director and Chief Executive Officer

Which scheme you are talking about if you just make it clear please?

Kapil Singh — Nomura — Analyst

What I’m saying is the FAME scheme which is there, if it discontinued.

Subir Chakraborty — Managing Director and Chief Executive Officer

Are you talking about paints?

Kapil Singh — Nomura — Analyst

No, no, FAME.

Subir Chakraborty — Managing Director and Chief Executive Officer

I’m sorry. We are not able to really comprehend your question. Are you talking about two-wheelers, Three-wheelers, their PLI, talking about the battery PLI, or what is it that you are talking about?

Kapil Singh — Nomura — Analyst

Sir, I’m talking about the FAME scheme.

Subir Chakraborty — Managing Director and Chief Executive Officer

Okay, sorry, sorry, yeah, FAME scheme. Yeah, that basically relates to two-wheelers, three-wheels, the FAME scheme. You are saying that because the government has been very strict with respect to disbursement of the subsidiaries and all that, whether it will affect.

Kapil Singh — Nomura — Analyst

Whether it will be discontinued in future and therefore the prices of two-wheelers and Three-wheelers can rise going ahead, right, that can effect volumes of the players.

Subir Chakraborty — Managing Director and Chief Executive Officer

I’ve understood your question. We have to look at the broad picture. At the end of the day, it’s a one-way street. I do not think there is any doubt in anybody’s mind about electrification of the economy with the objective of making it pollution free. On that there is no doubt. Now while journeying on this path there may be many options, many obstacles, certain things that you’re talking about may come in the way. But I’m sure as a country we will be able to find a solution to that. I don’t think the solution lies in going on with, you know, fossil mixed fuels and internal combustion engine forever. Of course, there will always be existence of a certain percentage of these vehicles. But the direction I think that has been set for the country and for the whole world, I do not think that is going to change because of one scheme or the other scheme. I’m sure at some point of time the economy or the country will take a call as to what is to be done with this. So I do not think — this may be a short-term problem. I’m sure they will — that that the government will find a way to to mitigate this.

Kapil Singh — Nomura — Analyst

Okay sir. And sir, just one more thing. Wanted to ask that in terms of margin profile of the business generally it has been that B2B margins are lower and the replacement margins are much higher and therefore we get to average margin of around 10%. So when we look at the lithium-ion business, do you think the profile of margin will be much higher so that you can enjoy that 15% or 20% ROE that you’re talking about? Are there initial signs that we will be able to get much higher margins in lithium-ion?

Subir Chakraborty — Managing Director and Chief Executive Officer

We expect the EBITDA of the lithium-ion plant to be on par with that of lead acid so it won’t be a drag on the lead acid business, number-one. Number-two is that as far as margins are concerned, I do not think that there will be an issue on this front. So going forward I do not think that there is any cause for worry on this.

Kapil Singh — Nomura — Analyst

No, basically the question was that replacement margins generally are much higher, right?

Subir Chakraborty — Managing Director and Chief Executive Officer

Replacement, I’ll tell you replacement. Now, you cannot look at lithium-ion business in the same way that you look at lead acid, for the simple reason lead acid has got an OEM market and replacement market. So it follows a certain model. Now people who supply to OEM. For example, if you look at people who supply other parts. For example, carburetor or seats and so on and so forth, they enjoy a fairly good margin. And mostly that business is B2B business. So B2B business does not mean — necessarily mean a low-margin business. It depends on the business model. Now the model is one where you only supplying B2B. Then of course the same equation is on hold, then you have to price your product differently. Even for lithium-ion there will be some replacement business, particularly Two-wheelers and Three-wheelers. I believe there will be a good replacement business there.

Kapil Singh — Nomura — Analyst

Right. Okay sir. Thank you. And all the best.

Operator

Thank you. Our next question comes from the line of Krupa Shankar from Avendus Spark. Please go ahead.

Krupa Shankar — Avendus Spark — Analyst

Good evening, and thank you for the opportunity. I had a question relating to the raw material procurement for the lithium-ion plant. Is it mandatory to procure it only via SVOLT channel or given that we can — we have lithium resources in India as well for — at least discovered for this moment.

Subir Chakraborty — Managing Director and Chief Executive Officer

There is nothing mandatory because SVOLT also procures from other people. It’s not that they are making all their raw materials. So there is nothing mandatory about it. The supply chain arrangement is such that we will be able to enjoy the same pricing power. Now if we get a source in India which is acceptable from the point-of-view of quality and which gives us a a better price, certainly we will consider that. There is nothing mandatory in the agreement which states that you have to procure from a certain source.

Krupa Shankar — Avendus Spark — Analyst

Thank you. And the second question, if you can share sir, relating to what would be the proportion of revenues currently from your Two-wheeler, Four-wheeler and industrial side of things? And how do you see this evolving over a period because eventually you would see that the lead acid business would see a decline across each segments depending on the electrification. So how do you see that evolving as well?

Subir Chakraborty — Managing Director and Chief Executive Officer

As I have said, if India continues to grow at this rate and we reached the $5 trillion economy by the time 2028 or so, there is no reason to fear for any any chemistry — any energy chemistry because the will be such and the requirement will be such, it will be impossible for any one chemistry to be able to satisfy the entire requirement, number-one. Number-two, all chemistries come with their pros and cons. So if you ask me, I do not see lead acid disappearing, whereas it will very much remain. Why will it remain because there are many segments where lead acid will be the battery of choice, even for EV. It is not on lithium-ion. Every EUV requires one auxiliary battery, which is led acid battery.

And why is it lead acid battery, because lead acid battery is not only cheap, it actually technologically serves that requirement very well, which is the auxiliary requirement. So led acid battery is not going to disappear. Number-one. Other chemistries are going to emerge and ultimately we will see a multi chemistry format in all these space, that’s the way I look at it. So there is nothing to fear for any chemistry if India continues to grow. The problem will be if India does not grow, but I do not think that is an option which we are looking at at this point in time, or anybody.

Krupa Shankar — Avendus Spark — Analyst

Sure, sir. Regarding the proportion of contribution from Two-wheeler, four-Wheeler and industrial, can you just tell?

Subir Chakraborty — Managing Director and Chief Executive Officer

If you look at electrification, then two-wheeler is a low-hanging fruit. Why is it a low-hanging fruit, because you can actually charge it in your house, you can open that module pack unit, take it to your and charge it. Its easy to charge. It’s a small battery. Now as the battery gets bigger and bigger, then you require formal charging stations and so on and so forth, which are not yet fully developed in our country, but I’m sure in course of time that will also take place. Now starting — two-wheeler obviously we will see as low-hanging fruit. Now intra-city buses, they also provide a certain facility which makes it convenient for them because they do their round and go back to their depots. So depots can have either battery serving stations or battery charging stations. So it is why we see many road transport undertakings. Intra-city buses are getting electrified.

Then you have the Three-wheelers. Three-wheelers already run on — lot of them run on lead-acid. It could also run on lithium-ion. Again, it’s possible out there. In the telecom sector, yes, certain applications, 5G and so on and so forth there is a case for lithium-ion battery. So similarly there will be many last mile delivery vehicles. And also the the taxies which lies in the city, there is a case which may be possible to make out for lithium-ion. So certain segments will obviously be the first-mover in this exercise, certain segments will take time.

Operator

Thank you. Ladies and gentlemen, that was the last question for today. I now hand the conference over to the management for closing comments.

Subir Chakraborty — Managing Director and Chief Executive Officer

So thank you very much for your patience and for listening to us. I hope we have been able to answer all of your questions satisfactorily. If you have any further questions or would like to know more about the company, we’d be happy to be available. Thank you.

Operator

[Operator Closing Remarks]